Supply and demand, understand how a pandemic impacts the question “how expensive is it to build a house”?
Building a house was already an expensive endeavor, so how has the pandemic impacted the costs and timelines? We will cover how expensive it is to build a house, the factors that have made prices rise, and what you can expect for the foreseeable future.
As nation-wide shutdowns began due to the pandemic, many mills and supply manufacturers shut down their factories to protect their employees. Less work, fewer materials. A ripple effect of the shutdown means the number of materials that are available to contractors has dramatically reduced. And as we all know, when supply is down, and demand is up, that means costs also go up. Specifically, the cost of acquiring materials has risen, which directly increases the price to build your house. And as the stock continues to deplete, not only are the prices are driven up, but timelines are also being stretched out. So, if you’re financing the construction costs with a loan that could mean more mortgage payments, interest payments, and property taxes before your structure is complete.
Concurrently, the demand to build new homes did not decline but rather increased. Hundreds of people living in highly populated cities like New York are making the move to towns like Montclair and Glenridge with an urgency unlike ever before. Families want to build spacious new homes where they can spread out, work remotely, and focus on the family. Construction labor, though, follows the supply and demand theory; supply of materials decreased and demand increased, causing labor prices to increase as well. With such unpredictable circumstances, manpower has been limited and inconsistent in the construction industry. As the pandemic continued, many workers feared for their health and decided that social distancing was the safest option. The ones who did continue to work asked for higher pay, which also impacted the increase in the cost to build a home.
The ever-burning question of “how expensive is it to build a house?” now has become “how much MORE expensive is it to build a house?” Let’s look to see where we may be able to find savings or benefits from the current real estate market.
There is a silver lining to all of these added costs: record low-interest rates on mortgages and home equity lines of credit. Mortgage rates have dropped to below 3%, a rate that has never been seen before. For a $285,000 home, the national median home price, homeowners will save approximately $100 a month and $50,000 over the course of the loan. Similarly, more expensive homes are now more affordable. For example, if a homeowner can afford a $347,750 home with a $2,000 monthly payment at a 5% interest, they could now afford a $414,000 home with $2,000 monthly payments at a 3% interest rate. That means you now have access to over sixty-six thousand dollars of additional home! These savings from the record low-interest rates may balance out the higher upfront prices to build a brand new home.
The pandemic has brought about unprecedented circumstances: both a buyer’s and seller’s market. So, while thousands of families are focused on buying a home from a tremendously limited market, you might have an advantage. Pursuing a new build right now means you’re hiring a construction company at a time when they are most are hopeful to meet the demand. Building professionals are finding creative ways to source materials and continue working safely amidst our “new normal”. Plus, you can lock in some of the lowest mortgage rates we’ve seen in years which equals thousands in the bank for you over time versus what you might be spending if the pandemic hadn’t changed everything.